Euro Buying Seen Tentative at 1.3555, Can the EURUSD Break Higher?

[B]- New Zealand: Stellar Retail Sales Leads Rallies

  • Euro: Orders at 1.3550 Contain Rallies
  • Pound: A Shade Stronger Despite Soft PPI
  • US Dollar: Markets May Hesitate Ahead of Tomorrow?s CPI Results

Euro Buying Seen Tentative at 1.3555, Can the EURUSD Break Higher?
The dollar started the week lower through Sunday night Asia trade, with bearish Friday momentum leading to a continued drop soon after the Tokyo open. Overall damage was limited, however, as later bids contained stronger Greenback declines. Markets have thus far proven unwilling to drive the EURUSD beyond last week?s congestion zone at 1.3550, while the GBPUSD was similarly held back near 1.9850. Mixed data proved to be Sterling negative and marginally positive for the Euro, while overnight news drove carry-trade favorites New Zealand dollar and Australian dollar to weekly highs. An empty US calendar provides little directional bias ahead of the New York open, but the USD may see some pre-positioning ahead of tomorrow?s extraordinarily busy calendar.
UK Producer Price Index data was the highlight of an otherwise quiet London session; disappointments in the headlines led to a quick and short GBP sell-off. Both Input and Core Output indices came in below consensus forecasts and left some doubts as to the likely outcome for tomorrow?s critical CPI figures. Looking at the breakdown however, the data showed a clear pickup in producer margins and suggested that businesses were able to pass higher input costs onto the consumer. Such information may imply that lower PPI may nonetheless coincide with stronger-than-forecast CPI gains. A later GBPUSD rebound suggests that markets tempered initial bearish sentiment, allowing the Sterling to recover some of its post-PPI losses.
Data out of the Euro-Zone was limited to the often overlooked Industrial Production report, with mixed data providing no clear reaction in the EURUSD. The headline month-over-month figure was 0.4 percent versus 0.3 forecast, but downward revisions to February figures left a decidedly neutral tone to the report. Notables included a jump in Non-durable Consumer Goods, but stagnant Durables and Capital Goods Expenditures indicated that firms scaled back previously strong investment. Given a similar result in last week?s German IP figures, it seems that Euro Zone investors may be growing less optimistic on the prospects of future growth. Of course, overall expectations could take a significant turn on tomorrow?s GDP figures; the future of EUR strength may depend on a stronger-than-forecast print.
The carry trade made a strong start to the trading week, as a stellar New Zealand Retail Sales result led to instant Kiwi gains and sympathetic moves in the Aussie dollar. Markets expected that sales would drop 0.2 percent after three months of strong gains, but the domestic consumer once again showed willingness to spend and drove the headline to 1.3 percent. Such strong spending may force to the Reserve Bank of New Zealand to remain steadfastly hawkish despite interest rates at fresh record-highs. Previous forecasts of stable rates may likewise prove premature if the consumer continues to show few signs of slowing. Interest rate-linked bids led the NZDUSD to challenge 0.7400, but limited extension in short-term interest rates implies that further currency gains may be limited absent continued strength in domestic data.